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The numbers: Total consumer credit rose $7.2 billion in May, down from a revised $20.3 billion gain in the prior month, the Federal Reserve said Monday. That translates into a 1.8% annual rate, down from a revised 5% gain in the prior month.
It is the lowest monthly increase in consumer borrowing since November 2020.
Economists had been expecting a $21 billion gain, according to a Wall Street Journal forecast.
Credit was initially reported up $23 billion in April, or a 5.7% rate.
Key details: Revolving credit, like credit cards, rose 8.2% in May after a 13.8% gain in the prior month.
Nonrevolving credit, typically auto and student loans, fell 0.4% after a 2.1% growth rate in the prior month. It is the first decline in nonrevolving credit since April 2020.
The Fed’s data does not include mortgage loans, which is the largest category of household debt.
Big picture: U.S. consumers have spent at an above-trend pace over the past couple of years and economists are watching the data closely for signs of strains on household balance sheets. Many economists think that the top income earners are still spending but many other households are pulling back.
What are they saying? “We expect consumer credit growth to continue to slow in the second half of 2023, with revolving credit experiencing a more pronounced slowdown. We anticipate record-high rates on credit cards, more restrictive lending standards and a softening labor market will lead consumer to curtail their borrowing,” said Nancy Vanden Houten, U.S. economist at Oxford Economics, in a note to clients.
Market reaction: Stocks
DJIA,
TMUBMUSD10Y,
closed higher on Monday while the yield on the 10-year Treasury note
TMUBMUSD10Y,
inched lower but stayed just about 4%.
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